Our friend and co- blogger Richard Brewer Hay, over at eBay Ink reported today about the move by the US Congress to require PayPal and other online payment processors to report annual gross receipts of individual online merchants in excess of $20,000.00 to the IRS.

Richard's report was partially sourced from the Wall Street Journal and also from the official PayPal blog. (See the block quote below).

In my humble opinion,

The following statement "a small percentage of PayPal customers are effected" by this impending IRS & Online sales tax issue, says little for PayPal or eBay as a route to business success. I mean... if the use of PayPal as a business solution to process payments from online sales, is a healthy concern, wouldnt more than a "small percentage" of PayPal users be effected by this IRS fact finding mission?

How can any online or ecommerce business stay in business if they do not process more than $20,000.00 per year in PayPal payments? What is the incentive?

While I am sure eBay and PayPal want to alleviate any fears small sellers may have in regards to the IRS coming down on them for not reporting income. eBay has been telling all sellers for years the facts of life when it comes to filing business taxes.

Every small business selling online should have all of the appropriate accounting proceedures, business licenses and tax advise needed to legally run their business. A limit of 20K a year only protects the hobby sellers from impending worry, all the real business people out there are already paying taxes, or should be. If they have not been doing so, then they should worry... Or run.

Thanks for the update Richard Brewer Hay and Ken Swab! We are glad that PayPal is working hard to help us avoid the tax man...

But lets be real, everyone should already be taking care of the IRS with all of the right filings.

Ken Swab, senior federal government relations officer at PayPal, has since written about it on the PayPal blog.

According to Ken, under the legislation, PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the U.S. who receive more than $20,000 in payment volume in a single year; and receive more than 200 payments in a single year.

Ken went on to say: I want to emphasize that this new law affects a small percentage of PayPal customers. Early versions of the legislation would have required PayPal to report total payment volume of many more customers, including those who received as little as $600 per year. We worked hard to educate Congress about the unique features of PayPal and the unique nature of our customer base. We also educated lawmakers about the many PayPal customers who receive money from others for reasons not related to operating a business.

It should be pointed out that the WSJ article originally stated that, “the payment processors will be required to file a 1099 form for each merchant to the IRS and to the merchant...

You know it is not that hard to figure out is it? The statement is ““a small percentage of PayPal customers are effected” “. So Those millions who simply use PayPal to pay for items and don’t process payments make up most of PayPals customers. Of course PayPal is playing games with making a statement like that, a real relevant statement would be how many business customers or eBay sellers are affected.

I think it’s just a numbers game… like eBay before it, PayPal is mainly made up of buyers, not sellers. So it could very easily be true that only a small percentage (what percentage, exactly, does he consider ‘small’ — less than half?) of PayPal members are sellers. I also think focusing on the dollars is going to miss the point… the IRS is also looking at more than 200 payments… or as few at 17 payments a month.

Looks to me like that ‘small percentage’ is going to be a bit bigger than they thought… 17 payments a month is nothing to even a casual eBay seller!

@Nathan – No its not hard to figure out, a much larger percentage of sellers than “small” are processing more than 20k in payments via PayPal.

The point of the article above is not to agree with PayPal’s spin. The intention is to take the spin and slow it down a tad.

Every seller should be concerned with making sure they file the proper tax documents. A 20K & 200 transaction a year rule will not protect anyone actively pursuing online sales as a business.

PayPal is trying to limit the panic they think will result when at home or small sellers read about the actions of Congress. To be sure, panic will result if this new legislation is passed.

The only real measure PayPal has available to limit the turmoil is to downplay the situation until it becomes real. This is what Ken Swab was doing in his article in the PayPal blog. Since not as many people read that blog as do eBayInk, RBH helped out a little by posting the same information in his more widely read blog.